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2005 Transactions | Year to Date 2005
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1220 Pitman Avenue | Palo Alto
1874 Park Boulevard | Palo Alto
1160 Bryant Street | Palo Alto
2195 Amherst Street | Palo Alto
918 Cowper Street | Palo Alto
4176 Donald Drive | Palo Alto
880 Forest Avenue | Palo Alto
267 Santa Rita Avenue | Palo Alto
2349 Dartmouth Street | Palo Alto
816 Sutter Avenue | Palo Alto
712 Coastland Drive | Palo Alto
236 Churchill Avenue | Palo Alto
940 Elsinore Drive | Palo Alto
353 Melville Avenue | Palo Alto
440 Santa Rita Avenue | Menlo Park
1140 Cloud Avenue | Menlo Park
176 Seminary Drive | Menlo Park
803 18th Avenue | Menlo Park
271 De Anza Lane | Los Altos
1485 Oakhurst Avenue | Los Altos
2 Leon Way | Atherton
54 Maple Avenue | Atherton
42 Ridge View Drive | Atherton
50 Black Fox Way | Redwood City
162 Rutherford Avenue | Redwood City
1016 Valota Road | Redwood City
954 Bellomo Avenue | Sunnyvale
1160 Shenandoah Drive | Sunnyvale
509 Sierra Vista Avenue #9 | Mountain View
938 Clark Avenue #47 | Mountain View
1140 Carlos Privada | Mountain View
1234 Isabelle Avenue | Mountain View
2080 Marich Way #16 | Mountain View
150 N Balsamina Way | Portola Valley
1094 Hewitt Drive | San Carlos
1348 Mildred Avenue | San Jose
19874 Park Drive | Saratoga
20 Big Pine Road | Woodside
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Recent media enthusiasm to report evidence of a change in the market dynamics has generated a great
deal of discussion. Our analysis of the 2005 market to date is as follows: |
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Q1 |
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Primarily, we look at the market in two dimensions, price and volume. January and February this year saw very low volume due
to the lack of new property listings appearing on the market. This resulted in a signifi cant price jump in March and April.
To illustrate the point, in March we listed a beautiful Craftsman home in the Professorville neighborhood of Palo Alto. All
recent sales evidence pointed to a realistic valuation in the vicinity of $2.2m. We listed it at $2.4m due to our observation of
the limited competition. We sold the property the fi rst day for just under $3.0m. In this case this represents a 20% jump in
price, in other words, a 20% increase in value in a very brief period of time. |
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Q 2&3 |
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List prices, and the expectations of sellers, consistently moved up. Sellers routinely received multiple offers and achieved prices
above their expectations. The “new prices” refl ected the same 19-20% rise from the prices at the start of the year. Sellers
were expecting more, thus list prices continued to go up. |
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Start Q4 |
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By the end of September, the buyers’ willingness to pay had tapered off. Sellers are still hoping for multiple offers and buyers
are still looking at listing prices and thinking “list price & up”. Sellers still want more, buyers are very price conscious, thus there
is a signifi cant increase in inventory. The list prices refl ecting a 30% annual increase are now being reduced to refl ect a 20%
increase. This results in a sale. |
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The Future – Stay tuned |
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The fundamentals of the market remain the same. Supply in our area is relatively fi xed, demand is consistent. Firm demand
doesn’t mean that a buyer will pay anything the seller asks. The Bay Area in general and the Peninsula in particular are places
many, many people want to be. Borrowing money at some point in the near future should become more expensive, supply
has doubled, and consumer confi dence is the only uncertainty. We will know which direction we are headed by the end of
the year. So, stay tuned and we will keep you informed.
Of all the real estate studies and media reports to which we have been exposed in recent months, the most rigorous and
informative we have seen is a paper fi rst published in the Fall 2005 Journal of Economics Perspectives. The paper is a combined
work from the Federal Reserve, Columbia Business School and The Wharton School entitled “Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions” (http://www.ny.frb.org/research/staff_reports/sr218.pdf).
The study outlines a disciplined method of assessing the “ownership vs. rent & invest” dilemma that we all face. Being
economists, the authors only approach this from a fi nancial point of view and do not mention the intangible benefi ts of
homeownership. Overall, it is an excellent method of analysis. Be prepared to read it over more than once.
The study also reviews the past 25 years comparing the cost of home ownership, incomes and cost of renting for 46
metropolitan areas in the US. The overall conclusion is that since 1995 the cost of owning rose relative to the cost of renting
but not to levels that made houses look overvalued.
RBL
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